A new duty is to be introduced from April 2017, requiring large businesses to publish information on their payment practices and performance twice a year.
Why is the duty being introduced?
According to government figures, small and medium sized businesses were owed around £26.8 billion worth of late payments as of June 2015. The government is aware of the harmful effects that late payment can have on smaller businesses and is therefore taking action to create a more responsible payment culture.
The government’s objective of introducing the new reporting duty is to make payment behaviour a reputational boardroom issue which will allow poor payment practices to be publicly exposed and, as a result, encourage such practices to improve.
What businesses must comply with the new duty?
The duty will apply to large companies and large limited liability partnerships that have met two or more of the following criteria on both of their last two balance sheet dates:
- over £36 million annual turnover
- over £18 million balance sheet total
- over 250 employees.
To fall within the reporting duty, parent companies or limited liability partnerships which head large groups will only be required to report if they qualify as ‘large’ in their own right. Each business in scope will be required to publish its own individual and non-consolidated reports.
What will affected businesses need to do in order to comply with the duty?
Affected businesses will be required to publish certain information on their payment practices and policies in relation to business-to-business contracts which have a significant connection with the UK. The information will require to be published twice a year on a web-based service provided by the government.
Each business will be required to publish the following information:
- Narrative descriptions of the organisation’s payment terms and process for dispute resolution regarding payment;
- Statistics on, amongst other things, the average time taken to pay invoices from the date of receipt and the percentage of invoices paid within 30 days or less, 31-61 days and over 60 days (within the reporting period); and
- Statements on, amongst other things, whether the organisation offers e-invoicing and supply chain finance and whether the organisation’s practices and policies cover deducting sums from payments as a charge for remaining on a supplier’s list and whether they have done this during the reporting period.
Failure to report, or to publish false or misleading information, will be a criminal offence for which both the company and its directors will be liable to a fine on summary conviction.
When does the duty begin?
The government intends for the duty to apply to financial years beginning on or after 6 April 2017. Businesses will be required to report twice a year, with the first report to be published within 30 days after the end of the first six months of the financial year and the second report to be published within 30 days after the end of the financial year.
What should affected businesses do now?
Whilst the duty is not yet in force, affected businesses that will be subject to the new reporting duty should review their payment systems and processes now and ensure that they have appropriate systems in place to gather the data they will need to submit their first report.
Businesses should also take this opportunity to scrutinise their payment policies and practices in the light of the increased transparency which will come about as a result of the new disclosure requirements. Those businesses that already operate good payment practices may look to utilise their first report to publicise their positive record.
Businesses that consider their payment performance to be unsatisfactory may consider whether an explanation of any mitigating circumstances can be included in the report to add context and help to minimise the likelihood of any reputational issues following publication of their report.
If you would like any further information or assistance regarding the new disclosure requirements then please contact Arveen Arabshahi on 0131 625 9191 or via email.
The matter in this publication is based on our current understanding of the law. The information provides only an overview of the law in force at the date hereof and has been produced for general information purposes only. Professional advice should always be sought before taking any action in reliance of the information. Accordingly, Davidson Chalmers LLP does not take any responsibility for losses incurred by any person through acting or failing to act on the basis of anything contained in this publication.